Greece’s future in the Eurozone took yet another twist overnight, with the country headed for the polls yet again. Having agreed to an €86 billion bailout package last month, the possibility of a Grexit is now firmly back on the table.
If you’re a bailout sceptic like me, that’ll come as something of a relief. The Greek people are getting what is likely to prove one final opportunity to reshape the nation’s destiny. Unlike previous elections, there’s hope that this time will be different — with good reason too. We’ll get to that shortly. But first I want to take a moment to explain what exactly happened overnight.
Greek Prime Minister, Alexis Tsipras, announced the resignation of his Coalition government. He did so after a turbulent seven months in office. But don’t read into this as an admission of defeat. Mr Tsipras isn’t actually throwing in the towel. It might be a resignation in principle, but in practice it’s more a ‘reset’. Tsipras is merely making a calculated gamble aimed at increasing his own mandate for enacting punishing reforms.
What’s brought about this sudden decision then? Well, the snap elections are taking place for two key reasons.
For one, Mr Tsipras wants to quiet hard-line MPs in his ruling Syriza party. In silencing ‘rogue’ MPs, he hopes it’ll give Greece a better platform from which to satisfy creditor demands.
The second reason is that Tsipras wants to raise public support for the bailout package.
Not surprisingly, Tsipras timed his snap election perfectly. How? He waited until Greece received its first chunk of bailout funds.
Just yesterday, creditors handed over the first €13 billion tranche of funds to Greece. These funds give Greece real breathing room. In fact it’s expected it should tide the nation over for the next two months. As a result, Tsipras has enough time to shore up the support he needs without risking the nation’s ongoing stability.
Under any other circumstance, Mr Tsipras would have spooked creditors. Enough so that they’d probably have held back the funding required to keep Greece afloat.
But there’s another important point to all this. It almost certainly means that Tsipras will delay the economic reforms creditors want. If this was the plan all along, then Tsipras always intended to stall at the moment Greece’s received the first round of bailout funds.
This tells us that no one is quite sure about what the future holds for Greece. It might be a calculated gamble, but it’s a risky one. And it could blow up in Mr Tsipras’ face.
Greek elections could finally let voters decide the fate of the nation
Depending on the outcome of the elections, things could go one of two ways from here.
If Mr Tsipras doesn’t get the backing he claims he wants, then economic reforms might be off the table for good. After all, that’s what these elections are about. You either accept the bailout terms, or you reject them. If the Greek people choose the latter, then Mr Tsipras is done for as Syriza’s leader. That means Greece will end up with a new leader. And in all probability the new prime minister will be a hard-liner who rejects the bailout terms.
Any new government wouldn’t have the mandate to push through reforms. Without that, creditors will balk at giving Greece any more funding. If that’s how things pan out, then Greece can forget about cooperation from its creditors. In that circumstance a Grexit is well and truly back on the cards.
Yet what about the other end? What happens if Mr Tsipras gets his way?
For one, it would result in a far more stable government.
Currently, Syriza is split between those who support the bailouts, and those who don’t. In fact, Tsipras retains more support from centre-right opposition MPs than from within his own party. Not that this should come as a surprise though.
Syriza was elected on the basis on anti-austerity. It initially opposed bailout demands for spending and pension cuts. And it still does, at least by those who remain stoutly leftist. Syriza is, after all, a leftist party, with varying degrees of moderation. As a matter of fact, one third of Syriza MPs believe Tsipras betrayed the party in agreeing to a new bailout deal.
Considering the party was elected because of its stance against austerity, they have a point.
And that’s why Tsipras wants this far-left element in his party silenced. Failing this, the party split puts pressure on the viability of economic reforms going forward.
But if he succeeds, it’ll clear away the obstacles standing in the way of reforms.
From that perspective, this short-notice election could increase support for the bailout program that Tsipras signed off on with creditors. It could also pave the way for the implementation of some of the harsher reforms.
That’s why Tsipras wants the public’s backing. He craves support for the bailout agreement before the worst effects of the terms hit most voters.
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Why Greek voters are likely to say ‘no’ to Tsipras
Mr Tsipras is playing a dangerous game. He still retains the popularity of voters, partly because he’s convinced them that his bargaining saved them from much worse.
Whether any of that is true is debatable. But he’s hoping this plays in his favour. Enough so that it forces the Greek people to choose between him and the bailout program.
Tsipras admits that creditors forced some difficult measures onto the Greek people. But he countered this by claiming that he rejected far more punishing reforms.
Yes, Tsipras did prevent the privatisation of Greece’s electricity utility. But he also agreed to sell off other Greek assets. Just this week, a German firm started running Greece’s tourist airports. The troika of creditors could have taken more you’d imagine.
What’s more, he didn’t prevent the likelihood of cuts to pensions and spending. More than anything, that’s what matters most to the Greek people.
Mr Tsipras might also be overestimating his popularity if he’s pinning his hopes on that. Yet he right about one thing.
Most Greeks are desperate to remain in both the Eurozone and European Union. No one particularly wants a Grexit. Tsipras wisely uses this to his advantage. He not shy about telling voters that the alternative to the bailout is a swift exit from the Eurozone.
But the Greek people can’t have it both ways. You either choose bailouts or self-determination.
Considering that Greeks have been asked several times to choose before, why is this time any different? It’s different because the Syriza split could finally usher in a government that carries out its promise. In other words, these elections could actually give people a choice. That’s important because Greek’s have only had the illusion of choice in the past.
It’s worth remembering that the opinions of voters hasn’t counted for much recently. A little over a month ago, Greece held a referendum on whether to accept or reject the bailout terms. Greeks were unanimously united in their rejection of the terms. Over 61% of people voted in favour of ‘no’ to bailouts.
What did they get for their troubles? An €86 billion bailout agreement. Some choice…
While it’s true that Greeks want to remain in the Eurozone, they’re not delusional. It’s not as if the voters don’t know the consequences of rejecting the terms.
Austerity measures have devastated both the livelihood and pride of the Greek people. The majority of people, as they’ve shown, are ready for another way. And this time it could be different. If the public vote goes against Tsipras, the hard-liners could form a new Coalition government. That would almost certainly spell the end for the future of the bailout program.
What the future of Greece might look like
From here, there’s no question that the hard-liners in the party will make things difficult for Tsipras. If they gain the public’s support, then the entire €86 bailout package comes under jeopardy. With that, Greece’s future in the Eurozone comes under threat too.
The creditors have their hands tied on this one. Without a pliant Greek government to swing things in their favour, it’ll kill any political hope of maintaining the status quo. The new Greek government would reject the terms of the agreement, and creditors would stop the flow of bailout funds. It’s the doomsday scenario for Europe all over again. And it raises the prospect for contagion to spread yet again.
Of course, that’s one way things could shape out from here.
The other, as mentioned previously, is that Tsipras gets the support he craves. In that scenario, the European masters in Brussels win. Not only would that leave hard-liners sidelined, but it’d set in stone Greece’s position as a vassal state. Punishing austerity reforms are a guarantee beyond that point, as are the continuing selloffs of Greek assets. That means smaller pensions, and more German firms controlling Greek state assets.
But there is hope.
As Iceland has shown, you can reject the iron fist of banks and still come out on top. There is a future outside the Eurozone. After years of senseless suffering, we can only hope the Greek people vote for another way.
The real hope is that this time, finally, it’ll be different.
The Greek people have rejected bailouts on numerous occasions already. But this could prove the first election in which their voices finally matter.
Contributor, The Daily Reckoning
PS: Australia, like Greece, has its own set of economic problems. While our challenges are far more manageable, our economy’s slowdown is worrying. GDP growth is on course to enter negative territory over the next six months. Every month brings with it new, negative, economic data.
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